BOND REPORT: Treasury Yields Slip From 2-week Highs As Trump Tax Plan Unveiled
April 26 2017 - 04:33PM
Dow Jones News
By Sunny Oh
Treasury prices rose, and yields declined, as bond investors'
expressed doubts about the White House's ability to push through an
ambitious tax plan, which includes a corporate tax cut to 15% from
35% for top payers, through Congress.
The yield on the 10-year Treasury note fell 1.8 basis points to
2.312%, after earlier pushing above important chart resistance at
2.32%. Bond prices move in the opposite direction of yields; one
basis point is one hundredth of a percentage point.
Yields for the 2-year note rose 0.3 basis point to 1.278%, while
yields for the 30-year bond slipped 1.2 basis points to 2.971%.
U.S. Treasury Secretary Steven Mnuchin and National Economic
Council Director Gary Cohn revealed the outlines of a tax overhaul
Wednesday afternoon, that sought to eliminate the alternative
minimum and estate taxes, and get rid of other deductions. But the
news conference provided broad strokes rather than specific details
and helped stoke skepticism about President Donald Trump's ability
to make the plans a reality.
A possible reduction in taxes has underpinned a run-up in assets
perceived as risky, like stocks.
But bond investors have harbored doubts about Trump's ability to
reach across the aisle and carry out major fiscal reforms, which
would be bearish to bond prices, pushing yields higher.
A proposal for major changes to the tax plan, comes as Treasury
yields have maintained relatively low yields, despite a brisk
two-day rally in stocks that saw the Nasdaq Composite Index rally
to its first record since March 1, and breached a psychologically
important level of 6,000 on Tuesday
(http://www.marketwatch.com/story/us-stocks-poised-to-build-on-rally-with-flood-of-earnings-ahead-2017-04-25).
Yields on the 10-year Treasury note have been unable to breach a
resistance level of 2.60%, their highest levels during the early
days of Trump's presidency.
"Based on what we've seen, it seems a fairly significant tax
cut, but it's not clear how its going to get past the Democrats,
let alone the fiscal hawks," said Aaron Kohli, an interest rate
strategist for BMO Capital Markets. "The markets are taking these
claims with a grain of salt. That's why you're seeing the yields do
the swan dive."
"The "tax code rally" doesn't have the same ring to it, however,
an aggressive cut to the tax rate could be a key driver for stocks
going forward, as long as the plan is not watered down by Congress
in the legislative phase," said Kathleen Brooks, research director
at City Index, in a note.
See: Trump's 15% corporate tax rate could cost the government $2
trillion
(http://www.marketwatch.com/story/trumps-15-corporate-tax-rate-could-cost-the-government-2-trillion-2017-04-25)
Meanwhile, demand for an auction of $34 billion of 5-year notes
was soft and had little impact on trading, said market
participants. Auctions of U.S. government paper can impact yields
and prices for the outstanding market.
(END) Dow Jones Newswires
April 26, 2017 16:18 ET (20:18 GMT)
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